$400bn per year 'needed to cut transport oil use’

Dubai, May 10, 2011

An annual investment of $400 billion is required to achieve 25 per cent penetration of alternative energy sources from 2010 to 2030 and reduce total oil consumption in transport by 0.5 per cent per year, a report said.

More than 60 per cent of the 87 million barrels of oil consumed every day powers the world’s transportation system, and liquid fossil fuels account for more than 96 per cent of the current energy supply to the transport sector, said the Repowering Transport report released by the World Economic Forum in collaboration with Booz & Company, a leading global management consulting firm.

The report argues that countries seeking to reduce oil dependency and emissions of their transport sector must support the development, distribution and adoption of new technologies in transport through a structured policy approach, strong public-private partnerships, risk hedging and collaborative financing.

The capital needed is moderate in relation to the $740 billion annual expense in global oil subsidies or the global transport industry’s annual $4,500 billion revenue, the report said.

Research found that lack of financing for green transportation is not a matter of capital availability but rather of uncertainty in the regulatory environment and challenges in assessing the risk involved.

“Understanding the opportunities and challenges in energy supply across all modes of transport is a highly complex undertaking; this report is the first to provide a comprehensive framework identifying critical enablers and ensuring deployment of the broadest range of technologies,” said Nick Pennell, vice president of Booz & Company.

“As examples, the report features China, whose $15 billion investment pledge in electric vehicles, coupled with a tight-knit collaboration between government and private enterprise, aims to put 5-10 million electric vehicles on the road by 2020.”

The report also highlights Brazil’s consistent 30-year policy supporting the development of biofuels, a technology that today powers 20 per cent of the country’s entire transportation system. Brazil continues to support biofuels with up to $2.5 billion dollars per annum of tax breaks and other consumption incentives.

Specifically, the Middle East is prone to rethink its consumption of fossil fuel for transport and mobility. While already having some of the largest CO2 emissions per capita, public transport in the GCC countries only accounts for about 5-10 per cent of all motorized trips. Urban transport demand is expected to double by 2025 in Middle Eastern Cities.

Establishing efficient public transport systems and achieving a public transport share of approximately 30-40 per cent as planned by several GCC countries is not only beneficial to mitigate increasing congestion but also provides a significant lever to reduce CO2 emissions in the region.

“The Middle East needs a whole new approach to mobility and public transport,” said Fadi Majdalani, vice president of Booz & Company.

“Current emission levels are simply not sustainable. A comprehensive approach of establishing excellent public transport systems and reducing the usage of private cars by means of road tolling, as well as an increase in fuel prices and a systematic demand management are required – and many cities such as Dubai, Abu Dhabi, Doha, Kuwait and Jeddah in the region are actually acting accordingly,” he added.

Also today, freight transport and logistics in the Middle East region are highly inefficient and dominated by road transport. Governments in the region have initiated multi-billion dollar programmes to establish a rail network in the Middle East/GCC to benefit from the lower emissions of rail freight transport and to accommodate the significantly increased demand.

“Rail freight is only measure to reduce emissions in the transport and logistics sector”, says Ulrich Koegler, vice president of Booz & Company.

“Yet, it is not even enough to off-set the emissions which will result from the growth of the sector. In land transport a comprehensive program of tight emissions charging schemes and promotion of modern and emission efficient technologies as well as taxation of fossil fuels is required simply to maintain current levels of CO2 emission.”

“But the sector can do far better. A fundamental restructuring of the supply chains and technology-driven improvements of truck fleet utilization have been key factors in the reduced emissions sector in Europe,” Koegler added.

Also, recent experiences in slow steaming in maritime transport have shown that this process can not only be beneficial to the cost of transport but also reduce fuel consumption by up to 20 per cent.

Still, the Middle East region as a whole has not embarked on a programme of modern and biofuels.

“We see Brazil, Germany and many other countries paving the way to complement fossil fuels with bio-generated components,” said George Chehade, vice president of Booz & Company.

“These countries truly invest in CO2-reducing fuels. Already today’s engine technology can accommodate a significant share of bio-fuels and we expect that in the near term the technology will allow for up to 30 per cent and more of bio-components.”

“Yet, there are no policies and incentives across the region for the industry to provide such modern fuels. It will not happen on its own – this is a call for government regulation and support to make it happen,” he noted.

Also, the automotive industry is working intensively on providing cost-effective electric vehicles. While energy storage of batteries used in electric vehicles is still a significant challenge, the Middle East regions solar power potential could be a great source of energy provision.

“Why do we need to wait for Siemens and other Western Industry Players to come up with programs such as Desert Tec to provide solar power on a large scale?” said Walid Fayad, vice president of Booz & Company.

“Masdar, the Abu Dhabi-based renewable energy company is developing concepts and technologies for 100 per cent emission-free transportation.”

“This is the time where the Middle East/GCC could truly pave the way for emission-free mobility and transport. However, significantly larger innovation and investment efforts are required,” he added. – TradeArabia News Service